Having attended the 2018 SRI Conference in Colorado Springs, aka: SRI in the Rockies back in November, I remember returning not only inspired to continue the work we do, but reassured that the work we do for our clients is simply the right work to be doing.
SRI is the acronym for investments that focus not only on a financial return, but they also have a social or environmental return component as well. SRI stands for Sustainable Responsible and Impact, and it’s rightly taken claim as one of the fastest growing segments of the investment marketplace. Quite simply, and when looked at correctly, it is the way to have your money “do more”, for you, and for others.
During one of the breakout sessions that took place over the 3-day conference, another advisor panelist recalled what I consider to be a very profound statement; it is actually a quote from one of her own wealth management clients: “I just don’t want my investments to cause the problems that my philanthropy is trying so hard to fix.”
Think about that for a moment.
Now, I like to give all individuals the benefit of the doubt that they are well intentioned. And I also recognize that the things I have been exposed to and studied, within my 25-year career in the financial services industry, are not typically mainstream news or cocktail party conversation. Nor are many of the topics or trends we discuss or the analysis we apply when evaluating investments made widely known to general public. But SRI should be made known, it needs to be made known. Not just within our industry, but on a much larger scale, so that the mass investment public knows about it, and understands it is an option for them and a strategy they can apply. Because I believe when they do, they will fully embrace it.
Here’s one real-world scenario that has played over and over in my head since hearing the client quote above:
Someone loses a loved-one to lung cancer. Regardless of whether their loved one smoked their entire life or didn’t smoke at all. Maybe the deceased had lived in a house filled with cigarette smoke because their parents smoked – cigarettes caused the cancer that took their life. After their loss they soon begin to financially support a national cancer non-profit, they get involved in local running events hosted by the non-profit, and even vote in favor of smoking bans in their local hometown. It is something that they do in memory of the loved one they lost with the hope for others that they do not to have to suffer through the heartache of a similar loss.
Yet, despite their own loss, despite their financial support of the non-profit, despite their personal disdain for cigarettes … every other week direct from their paycheck they support big tobacco companies.
They do this by investing in an S&P 500 Index fund in their 401(k) plan at work, or some other mutual fund they selected within their retirement plan which includes in its investment holdings, big tobacco companies. Here’s the problem, they don’t even know their doing it. They simply don’t know.
This is just one example. Here are a several others:
Someone drives an electric car because they want to do their part to help cut back on their own carbon footprint, or someone else is totally against off-shore drilling, yet they both own big oil stocks. Someone else financially supports the rain-forests or is against deforestation but unknowingly owns companies that are destroying them for meat, soybean, or palm oil production. What about forced labor or child labor? No one in their right mind would want to support that, but it is ramped in the supply chains of some of our biggest apparel manufacturers. There are mothers who make incredible strides to educate themselves on the ingredients that are contained within the foods they serve their children or the chemicals that are in cleaning products they use within their homes. Yet they own the companies that use and even create those very same ingredients and chemicals they are trying so hard to avoid.
Think about the #MeToo movement – extraordinary on so many levels and creating REAL change. Yet so many supporters and some of the biggest gender equality activists are investing in public companies that don’t even have women on their boards or in their circle of C-Suite executives. I have a hunch they wouldn’t want their hard-earned money deployed into the coffers of those big companies if they knew there is no women’s voice at the corporate table. Again, you don’t know what you don’t know.
That’s why SRI which utilizes environmental, social and governance (ESG) screening, needs to be made more widely known. There are other investment choices out there.
Real change happens when voices are heard, and big dollars flow to substantiate those voices. When facts are brought to the forefront, people are then educated on those facts, and they create a ripple effect that dictates action and eventual change. Whether it’s a collective voice heard through voting at the ballot box during election time, via stock proxies that you receive in the mail, or in your own local communities at city council meetings … capitalism may be the engine of the economy, but it’s a society’s values that influences the direction it moves.
What I find most extraordinary about SRI as a whole, is despite what appears to be a commonsense idea – the idea that we shouldn’t financially support the actions of the bad corporate players out there and that we should support companies that are accountable to all of their stakeholders – is that these good companies (because of their attention to detail and their awareness of the seemingly obvious) they are actually positioned better in many cases, and study after study has proven it true, to outperform financially.
I deliberately used the word “stakeholders” above when I should have used the more accurate phrase of active stakeholders, which differs greatly from passive “stockholders”. Stakeholders of a company include stockholders, but a company’s reach – their impact – is far greater, and they should be held accountable to more than just their stockholders. A stakeholder also includes a business’s customers, their employees, the vendors with whom they work, the natural environment and how their daily activities of operation impact it, and the local communities in which they operate and how they interact and engage within them.
When you look to the public equity markets, you can make direct comparisons between companies. The data is out there, and the evaluation tools exist to do so. To be fair, there are companies doing great work, in fact doing great things to advance us as a society – that don’t seemingly take much into consideration from an ESG standpoint but don’t have any negative impacts either, so there’s no need to avoid them. But there are many many companies that deliberately and knowingly cross the line of making a profit at all-costs. Their corporate greed supersedes all else for the maximization of profits which comes at the expense of their own employees’ well-being, their end-customers health (or privacy), or the environment in which the operate.
We see it in the news almost daily; an oil leak, a privacy breach, skyrocketing costs for prescription drugs, sweatshops, deforestation, mountaintop mining, exploding airbags, accounting fraud, unequal pay for women, racial discrimination in hiring practices … I’ll stop there. These news-making headlines are ALL liabilities. And guess what happens when these things get exposed? It costs these bad players dearly. It hits them hard. Not only financially, but worse – the reputational risk, in many cases, is irrecoverable. So if you intentionally look to avoid the companies that are predisposed for the types of liability risks that are so often caused by pure ignorance to things I’ve mentioned previously, you can actually reduce the risk of having these events happen, and subsequently reduce the overall risk in your investment portfolio.
When you really start to think about the application of ESG analysis and the materiality of non-financial metrics, there are so many reasons as to why we should all take these types of things into consideration when we look to make new investments. It just simply makes sense to know what you own. You’ve worked hard I imagine, not only to earn the money you invest, but to save the money you’ve earned in lieu of spending it. Don’t you think it’s worth the extra effort to really know what you own?
Please consider all of this, and consider sharing this as well, so that others simply “know” that they have “choice”. They have other options for how their hard-earned dollars are deployed in the investment marketplace. Because again, no one knows what they don’t know. Maybe this can help.
Investors are people, and people are often impatient. No one likes to wait in line or wait longer than they have to for something, especially today when so much is just a click or two away.
The federal government offers some major tax breaks for older Americans. Some of these perks deserve more publicity than they receive.
Getting rich quick can be liberating, but it can also be frustrating. A sudden wealth windfall can help you address retirement saving or college funding anxieties, and it may also allow you to live and work on your terms. On the other hand, you’ll pay more taxes, attract more attention, and maybe even contend with … Continue reading “When a Windfall Comes Your Way”
The SECURE Act passed into law in late 2019 and changed several aspects of retirement investing. These modifications included modifying the ability to stretch an Individual Retirement Account (IRA) and changing the age when IRA holders must start taking requirement minimum distributions to 72-years-old.1,2
When you are in your seventies, Internal Revenue Service rules say that you must start making withdrawals from your traditional IRA(s). In I.R.S. terminology, these annual withdrawals are considered your Required Minimum Distribution (RMDs).1
Epic Capital provides the following comprehensive financial planning and investment management services: Learn More >